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LEVERAGING REGIONAL POLICY SUCCESSES TO


IMPROVE INTERVENTIONS BY THE FOOD
RESERVE AGENCY AND THE PERFORMANCE OF
MAIZE MARKETS IN ZAMBIA

_______________________

Presented by;
Natasha Chilundika
&
Kelvin Mulungu

8/28/16

merely the same enemies as in all


other domains. The peculiar nature
of the material it deals with,
summons as foes into the field of
battle the most violent, mean and
malignant passions of the human
breast, the furies of private
interest.
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Karl Marx
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Outline
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FRA
Key Market Challenges
Study Aims
Regional Case Studies &
Recommendations
Conclusion

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FRA Mandate
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FRAs mandate to secure food reserves, and


provide a market are based on both welfare
and Political concerns
To establish food security
To increase the average maize price level
To attain low variability of maize prices
(stabilise prices)
To secure the rural vote

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Key market challenges


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However, FRAs intervention are regressive and


have led to;

Negative price impacts on net buyers (39%)


and urban consumers;
Low productivity of maize production;

reduced private sector investment and


participation through out the maize value
chain;

inability of Zambia becoming a regional


maize and maize products supplier and

negatively affected the growth


of the
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countrys agriculture sector in general

Key market challenges


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Results fro our previous study show that;

FRA interventions in maize markets are


suboptimal, and lead to market inefficiencies

A percentage increase in expected sales


leads to a 0.5 percentage increase in price

A one percentage increase in expected sales


leads to a 1.7 percentage increase in
quantities purchased

FRA buys about 1.5 times more maize in an


election year than they buy in other years
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Aims and Objectives


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Therefore, goal of this paper is to conduct a case


review of national strategic grain reserves in SSA
for evidence based best practice.

Specific objectives;
extensive analysis of operations in the region
to identify demonstrated good practice
Give recommendations on which of these can
work for Zambia
Outline the actions that can to be undertaken
to achieve recommendations
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Why is this Important


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Rural poverty is persistently high and agriculture


is the main economic activity

FRA is wasting resources directly and indirectly on


ineffective policy that is actually hurting intended
beneficiaries.

Time to move from being a country with


potential to one attaining its potential

Zambias consecutive surplus production puts in


a very strategic position to supply regional
markets like Zimbabwe, Malawi and
DRC
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Ghanas NAFCO
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National Food Buffer Stock Company (NAFCO) set


up in 2010

Strategic Reserves- Purchase of excess


market supply

Minimum price guarantee and price


stabilisation

Incorporated as a company with a CEO and a


board of directors- although still implements
government policy

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Ghanas NAFCO
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purchases very little of total marketed commodity


output, between 3% and 5%

Sets a minimum price considering farmers


production cost and then add a 10% profit margin

Price set by a post harvest


committee/commission consisting XXX

company uses 75 different private sector licenced


buying companies (LBCs) to purchase on its
behalf

LBCs paid a profit margin based in transaction


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costs

Ghanas NAFCO
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helped with price stabilization - volatility reduced


from 48% between 2002 and 2008 to 31%
between 2009 and 2012

marginally helped to reduce maize price


increases in operation areas-0.05% lower than
the rest of the markets

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Key Lessons
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Tanzanias WRS
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Implementing WRS since 2005


Began receiving technical assistance on WRS
in 1999- Same as Zambia
Piloted between 2002 and 2005
Same year warehouse Receipt Act passed by
parliament and Tanzania Warehouse Receipt
Licensing Board (TWLB) established-2005
2006 operational guidelines released
Tanzania has the most developed WRS in
Africa
7 crops; coffee, cashew, maize, paddy rice,
sunflower, sesame and pigeon8/28/16
peas

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Tanzanias WRS-How it All


Works

farmer, trader, group or company delivers the commodity to the


approved warehouse
is issued with two receipts.

takes the receipt to the financial institution for loan disbursement50% and 80% of the value of the commodity.

The depositor finds buyers, who make payments into the bank
account of the financial institution, which financed the depositor.

The financial institution issues a release warrant for the buyer to


access the commodities from the controlled warehouse, and

warehouse operator releases the commodity as per release


warrant to buyer
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Tanzanias WRS-Impact
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Contributed to price stabilisatiom

Actually increases farmer incomes- Anecdotal


evidence shows incomes doubled

Credit to farmers- no pressure for immediate cash

Reduced storage costs and losses

NMB- total portfolio of USD 15 million (40% of


their total agriculture related credit disbursed),
over 351 farmer groups and companies. Less
than 6% non-performing loans 40% of their total
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agriculture related credit disbursed

Key Lessons
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Contributed to price stabilisatiom

Actually increases farmer incomes- Anecdotal


evidence shows incomes doubled

Credit to farmers- no pressure for immediate cash

Reduced storage costs and losses

NMB- total portfolio of USD 15 million (40% of


their total agriculture related credit disbursed),
over 351 farmer groups and companies. Less
than 6% non-performing loans 40% of their total
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agriculture related credit disbursed

Tanzanias WRS-Impact
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Contributed to price stabilisatiom

Actually increases farmer incomes- Anecdotal


evidence shows incomes doubled

Credit to farmers- no pressure for immediate cash

Reduced storage costs and losses

NMB- total portfolio of USD 15 million (40% of


their total agriculture related credit disbursed),
over 351 farmer groups and companies. Less
than 6% non-performing loans 40% of their total
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agriculture related credit disbursed

Price Band
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Aprice bandis a value-setting method in


which a seller indicates an upper and
lower cost range, between which buyers
are able to place bids
It is s theory borrowed from stock markets
In the case of price stabilisation by
marketing boards, it is setting a ceiling
and floor price and releasing buffer stock
at ceiling price and buying buffer stock at
floor price
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The effect is to keep the price

Price Band
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The NCPB uses prices bands as way of


stabilising prices in the face of the
classical food price dilemma
When prices are too high, they hurt
urban consumers or net buyers of the
staple and when they are too low they
hurt farmers/producers or net sellers
The board is mandated to maintain
maize stocks of 8 million bags with half
of this being cash form while the other
half is actual 90 kg bags. 8/28/16

Key Lessons
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NCPB, through this mechanism has been


able to partially stabilise the prices but
inadvertently, raised the prices of maize
above market level especially in recent
years
There are issues also around the setting
of the two prices as the process is not
consultative and leaves other players in
the guess
However, when well implemented this
approach is still a better one8/28/16
at

Key Lessons
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FRA can do this and improve by having a


committee that possibly consists of
Zambia National Farmers Union, the
Millers Association of Zambia and
members of the Grain Traders
Association
This committee would work together
every marketing season to determine
the band based on agriculture
performance, production costs and
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transaction costs for the season.

Restricting Purchases
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There are few countries which have


SGR compared to GMBs
One of these, based on the scale of
operations in terms of quantity
purchased is Tanzania and Rwanda
Following the 2008 food prices crisis,
most
country
governments
intervened in staple crop markets

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Restricting Purchases
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The Tanzanian strategic grain reserves


purchases negligible amounts of maize
grain compared to what is produced and
marketed to have any influence on the
market (about 1% of total production)
Rwanda is another country that holds
strategic reserves for maize and beans.
However, the strategic reserve in
Rwanda is relatively new as it was
recently established
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Restricting Purchases
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In terms of
price
stability as
measured
by the
coefficient
of
variation,
Tanzania
has one of
the most
stable in
the regionthere could
be other
reasons
explaining
this
however

Source: Minot, 2010


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Key Lessons
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FRA could stick to buying only strategic


reserves and a small amount of
operational stock, and thus allow the
private sector to operate efficiently in
the market
In conjunction with the private sector,
some of the stock could be held in
monetary from especially if the WRS is
operational
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Conclusion
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Adopt a Price Band Short Term

Support Development of WRS through Purchasing


through ZAMACE and incentivising infrastructure
development by the private sector Medium to
Long term

All this depends on Coherent, Consistent and


Predictable policy Environment

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